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Buffett warns of liquidity curse

SOUND ADVICE: Mr Buffett said investors should treat equity holdings like real-estate purchases, focusing on profits over time.


    Feb 26, 2014

    Buffett warns of liquidity curse


    MR WARREN Buffett, the billionaire chairman of Berkshire Hathaway, cited a farm he's owned since 1986 to caution individuals against frequent buying and selling of stocks.

    Investors should treat their equity holdings like real-estate purchases, focusing on the potential for profits over time rather than short-term price fluctuations, Mr Buffett, 83, wrote in an excerpt from his annual letter published on the website of Fortune magazine.

    "Those people who can sit quietly for decades when they own a farm or apartment house, too often become frenetic when they are exposed to a stream of stock quotations," he said. "For these investors, liquidity is transformed from the unqualified benefit it should be to a curse."

    Mr Buffett has pursued a buy-and-hold investment approach as he built Omaha, Nebraska-based Berkshire into a US$280 billion (S$354 billion) company.

    He said individual investors may be better off avoiding his approach to picking stocks, and, instead, purchase a fund that holds every company in the Standard & Poor's 500 Index.

    "The goal of the non-professional should not be to pick winners," he wrote. "The 'know-nothing' investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results."

    Mr Buffett's track record of profitable stock picks and takeovers has helped make his letters a must-read on Wall Street. The full document will probably be released by Saturday.

    In the excerpt, Mr Buffett cited a 162ha farm near Omaha, which he bought for US$280,000 in 1986. The farm is now worth about five times what he paid, and earnings have tripled, he wrote.

    The billionaire compared the daily fluctuations in stock values to an erratic neighbour standing near his property, yelling out offers for the land.

    "Owners of stocks...too often let the capricious and irrational behaviour of their fellow owners cause them to behave irrationally," he wrote.

    "Some investors believe it is important to listen to pundits - and, worse yet, important to consider acting on their comments."